Tuesday, 4 June 2013

How such simple questions create such great data

Here's a graph from the media release that accompanied the most recent (March) Quarterly Survey of Business Opinion from the NZ Institute of Economic Research.

As a potted history of the recent performance of the New Zealand economy, it's hard to beat. At the left, you can see the impact of the tough monetary policy that followed the setting up of the Reserve Bank in its modern form (in 1989), as well as the initial impact of the 'mother of all Budgets' (1991). And so it goes - good times in the early to mid 1990s, the Asian crisis of 1998, better times in the first half of the 2000s, the GFC, and gradual recovery since.Currently, for example, you can see that Auckland and Christchurch are where it's all happening, with the rest of the country not quite as strong.

The amazing thing is that this wonderful data is all based on the most simple of techniques - as the NZIER says, "Each quarter we ask around 2500 firms about whether business conditions will deteriorate, stay the same, or improve". The net balance (the percentage expecting improvement less the percentage expecting deterioration) is what you see in the graph. A simple up, down, sideways question generates a terrific picture of what's happening in business and in the economy.

And in saying that it's such a simple question, I don't mean to belittle or diminish the value of what the NZIER do. They've been doing this since 1961, and as they say, and I agree, "The responses yield information about business trends much faster than official statistics and act as valuable leading indicators about the future state of the New Zealand economy". I'm not surprised that they keep the bulk of this valuable material for their subscriber membership (there's a whole slew of other data on both current and anticipated developments in the economy in the QSBO, not just the one I've pictured).

As a business resource, these sorts of business opinion surveys are highly useful. The official macroeconomic statistics are of course necessary for many purposes, too, but these opinion surveys are timely, generally on the button in the sense that they are capturing underlying realities, and include more squishy qualitative things (states of confidence, expectations about future events) that tend to be a more difficult area for statistical agencies to enter.

If you're not yet in the habit, give them a go. If you're a NZIER member, then you can consult the oracle at source. If you're not, the monthly ANZ's Business Outlook (formerly the National Bank's business opinion survey) is free and and highly informative. The ANZ folks say (and again I agree) it is "a key leading barometer for the economy. It relies on the input of New Zealand businesses and this input has proven to be very adept at picking economic developments". In particular it includes businesses' expectations for profits, which I always regard as a bellwether of how things are likely to go.

You should also have a look at the BusinessNZ/Bank of New Zealand Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI), which do what they say on the tin. You can find them here at the BusinessNZ website or you can subscribe to have them sent to you by the BNZ here (the 'subscribe' links for the surveys are at the bottom of the page).

You'll see that there is also a Performance of Composite Index (PCI), which combines the manufacturing and services indices into one overall measure. That's all good in itself, but an extra benefit is that it fits a standardised format also being used in other countries, which makes it easier to draw international comparisons.

If you're interested in Australia, then the local equivalent of the three BusinessNZ/BNZ indices is done by the Australian Industry Group here. And if you'd like the Australian equivalent of the ANZ's Business Outlook, the one I like to use is the NAB's monthly survey, which you'll find here (this is where the NAB posts all sorts of economic reports, so if the latest monthly business survey isn't on the first page, just scroll back till you find it). Again, it helpfully includes businesses' assessment of their profitability, which is one of the three things that go into making up the overall 'business conditions' measure the NAB compiles (the other two are trading performance and employment).

No comments:

Post a Comment

Welcome to my economics blog

“The remarkable thing about economics is that once you've been exposed to the big ideas, they begin to show up everywhere … Economics offers insight into wealth, poverty, gender relations, the environment, discrimination, politics...How could that possibly not be interesting?” - Charles Wheelan, Naked Economics: Undressing the Dismal Science, 2002

"The soundest argument for markets ... is simply that, very frequently, they are the least bad of the alternatives. To paraphrase Winston Churchill's remark on democracy, markets are the worst form of resource allocation, except for all the others that have been tried" - Prof George Yarrow, Three Lectures on Privatization, Jagiellonian University, Krakow, April 1990

"And if there's one thing we've learned about flawed markets, it's that people flee from them, either physically or by resorting to back channels and black markets. Either way, flawed markets can undermine not just communities but whole nations" - Alvin Roth, Who Gets What - and Why, 2015

"Economic controversy is generally a thankless task. You cannot hope to make any impression on your opponent. Yet he is the only reader on whose interest you can count" - Francis Ysidro Edgeworth, Economic Journal, 1898

"There is some evil genius which sits at the elbow of every economist, forcing him into all sorts of contorted and unnecessary complications" - John Maynard Keynes, letter to Roy Harrod, August 1935

"We are here and it is now. The way I see it is, after that, everything tends towards guesswork" - the philosopher Didactylos, in Terry Pratchett's Small Gods, 1992

"I have never yet seen any plan which has not been mended by the observations of those who were much inferior in understanding to the person who took the lead in the business" - the blogger's creed, as foreshadowed by Edmund Burke, Reflections on the Revolution in France, 1790

"They acted as their situation naturally directed, and they who have clamoured the loudest against them would probably not have acted better themselves" - advice to Twitterati, as foreshadowed by Adam Smith, An Inquiry Into The Nature and Causes of the Wealth of Nations, Book IV, 1776